Tips On Closing On Multifamily Deal

[Neel Patel]

Hey everyone, I got my first multi-family deal by called calling the owner and need some tips on how to negotiate the deal. The owner is currently asking $1000000($83333 per unit) for 12 units brick apartment in a rural town with 7K population. The total rent is $6995 for 12 units, which averages $577 for a unit. The rent can be increased to $625. The demand for apartments is strong in the area.

Approximate Expenses: $2,416 (Maintenance: 5% of the rent, Capital Expenditure: 5%, Vacancy Rate: 5%, Property Management: 0 since I will be managing it. I was going to set it to 5% but figured this is my first deal and don't want to miss on the right property)

NOI: $4,994

Cap Rate: 6% 

COC: 1.1%

I was thinking to make around an $800K offer. The reason why I am thinking to give that offer is that I am not counting management fees and the rents don't increase too much in the area. Feel free to give me any other tips that you might think will be useful.  

Thank you!

[Drew Sygit]

Not followihg your numbers.

What about property taxes, insurance, common utilities, landscaping, pest treatments, etc?

When was it built? 5% MNT probably too low.

5% vacancy with no experience? What Class is the property/tenants? If Class C, you'll need to bump to 10-15% to include nonperforming tenants.

ALWAYS factor in property management fees! And use 10%! If something happens to you, you can afford to hire it out. If you do DIY manage, bonus money in your pocket.

Do NOT fudge the numbers above to make a deal look acceptable! Rookie mistake that will burn you.